MLN NewsStream

It turns out nine months is not only enough time to make a baby, it's enough time to answer regulatory feedback. After three quarters of nail-biting anticipation, Canada's bank regulator has replied to feedback on the B-20 mortgage guidelines it proposed in January.

For those new to this story, OSFI is planning new rules (they call them guidelines) that make it harder for those with bigger debt loads to get a mortgage. The initiatives pertain specifically to uninsured mortgage underwriting at federally regulated financial institutions (FRFIs). Depending on what OSFI finally decrees, the implications could be significant for home prices, lender volumes and the options available to individual borrowers.

"Stakeholders were generally not supportive of additional debt serviceability measures," OSFI said today. "A key concern raised was the disproportionate impact that new, industry-wide measures could have on smaller institutions with unique business models."

"We believe additional measures are needed to mitigate the underlying vulnerability of a buildup in highly indebted borrowers," OSFI summarized. "We will therefore pursue targeted supervisory actions that will aim to limit FRFIs’ individual exposures to high household indebtedness over time."

Here's a quick summary of OSFI's responses and more on what the regulator has up its sleeve:

On Thursday, Canada's banking watchdog decided to throw some light on its looming mortgage policy changes.

OSFI hinted that one major mortgage underwriting restriction may not come to pass after all. If that proves true, the mortgage industry could breathe a bigger sigh of relief than a politician after a successful cover-up.

Here's what the regulator said...

Watch bond yields long enough, and you learn to expect surprises.

This time, however, it was one of the worst types of surprises: a terrorist-led atrocity.

The grim tragedy in Israel on Saturday blindsided bond yields, compelling global traders to reverse course and scramble into government bonds. Investors' intention, of course, was safety, so they fled to the financial world's #1 safe haven, U.S. Treasuries. That demand spilled over into government debt worldwide, pummeling yields (yields drop when bond prices rise).

The move in yields was forceful (see chart below):

For decades, homeowners have used leveraged investing techniques like the Smith Manoeuvre (SM) to turn dull old mortgages into tax-deductible debt, pay off those mortgages quicker and build more retirement assets.

Some of you use the SM yourself — or have sold mortgages (or want to sell mortgages) to people who use it.

If you're one of these people, read on because higher interest rates and regulations have altered the landscape. MLN spoke to three leveraged investing experts to get their updated takes and best practices:

• Financial planner and tax accountant Ed Rempel (link)
• Financial planner Jason Heath (link)
• Smith Manoeuvre Advisor Robinson Smith (link)

What's new/changing?

Compared to 2002, when Fraser Smith first popularized the strategy, two fundamental factors have changed, and both impact one's probability of success with the Smith Manoeuvre.